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Weekly Economic Commentary

Monday April 30, 2018

Economists were divided last week over how to read the latest CPI data with the headline inflation number missing estimates while the core measure etched out a small gain to touch the bottom of the RBA’s target range for the first time in two years. Most doubt that this rise will trigger the RBA to raise rates any time soon because some of the underlying CPI rises in the March quarter were temporary and some downward pressure on inflation will linger. This, along with ongoing soft economic growth, low wages growth and the tightening in lending standards now underway indicates that the RBA should remain on hold for some time. Traders are still pricing in only about a one-in-three chance of the RBA tightening by the end of this year and no full RBA rate hike priced in until mid-next year (refer chart below).

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